Author Topic: A trip down memory lane a home buying what if  (Read 1111 times)


  • Stubble
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A trip down memory lane a home buying what if
« on: June 06, 2020, 12:14:20 AM »
About 6 years ago in April 2014 I was considering buying my first home, a 1,000 sq ft. 2 bed room and 2 bath condo in the suburbs of Los Angeles. I was in escrow for a sales price of $245,000. On the advice of members of this forum and to get more value for my offer I countered to $240K which was rejected and I let my first home go.
I often wonder in these past few years if I had come out better ahead. For those of you interested I wonder if Iím missing anything in my calculations. This may be long:
$245,000 sales prices with intention of $61,250 down @ 4.75% for 30 years fixed. Annual property taxes to start I calculated $3,180. HOA last check has continuously been $350 per month. Homeownerís insurance about $500 per year. Electricity only I calculated at $100 per month.
Roughly over 6 years:
Total interest on loan: $50K, loan remaining $165K
HOA: $25K
Property Tax: $20K 
Insurance: $3K
Utilities: $7.2K
Annual maintenance: $15K (using a 1% of sales value)+$10K in initial repairs I knew needed to be made to replace A/C and other items when first bought.
Cost: $130K. I understand that it will be less because of the write off from taxes. Not exactly sure how to figure that in maybe someone with better know how can do that. My annual average income throughout this period is about $65K. I did anticipate renting 1 room out for $700. Using a 11 month per year calculation I would net $46,000 on the conservative side over 6 years.
The property is now worth $404K and a recent property same size in the same complex sold for $415K (the original unit I picked wasnít as ideal). Minus current loan of $165K so a gain of $170K tax free if I sold now as my primary! Minus cost + rent = $86K!
Opportunity cost! (this gets a bit trickier)
$61,250 from the down payment
The next few amounts I know are over 6 years so not exactly sure how to calculate the over time gainÖ
$25K from the HOA, $20K from property Tax, $3K insurance, $7.2K utilities
All total: $116,450
Minus my housing cost during this time is $30K including all expenses paid. So I believe base actual opportunity is about $116K - $30K= $86K. Now this part gets even trickier! I estimate that over these 6 years about 30% was invested into Apple stock and the other 70% roughly into S&P 500 and other investments with similar return. Over this period Apple stock rose 336% and the S&P 81.23% (using recent market highs before Corona). Using these growth amounts on $86K I calculate that my total opportunity cost is: $195,788. Minus long term capital gain taxes for the growth so on $109,788 should be about $16.5K so I think about $179K. Now I know Iím missing the dividend return and compound growth on my S&P 500 which I reinvested at 2% thatís 12K over 6 years on a base of $86K minus the taxes on that amount for a grand total estimate of $189K
My conclusion is that by not buying a home I have still gained $103K. The difference between $189K from market investments versus $86K from the sale of the home?       
Am I doing this right?


  • Magnum Stache
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Re: A trip down memory lane a home buying what if
« Reply #1 on: June 08, 2020, 10:15:33 AM »
Makes sense to me! LA is definitely a market where it makes more sense to rent.

Did you account for closing costs? Also, it's likely you would have refinanced at some point between 2014 and now. If you really want to get technical and compare cash outcome to cash outcome, you should also factor in the cost of selling it today (After all, you can sell stocks at the click of a button for nothing, but to exit a property you have a lot of liabilities to pay.). So that's almost 3 partial sets of closing costs.

There's also the risk you avoided by not buying property in such a bubbly RE market. This is probably about equal to the risk of stocks going down.

I'd love to see this in spreadsheet form. Yes, the property almost doubled in price, but it could have still been a bad investment decision!


  • Bristles
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Re: A trip down memory lane a home buying what if
« Reply #2 on: June 08, 2020, 02:10:57 PM »
I decided to double check your return math, because I liked your ideas. I figured you started with $62,500 and then the remaining $23,500 of your cost difference was spread over 72 equal monthly investments of $326.00.

If you put the whole $62,500 into VTI (ETF version of VTSAX) on 4/8/2014, then invested the $326/mo into VTI, total return including dividends puts you at $144,362.

Building a mini portfolio of 70% SPY (S&P 500 ETF) and 30% AAPL stock, with a starting investment of $18,750 into AAPL and $43,750 into SPY and then monthly investments of $97.80 into AAPL and $228.20 into SPY, your total return including dividends puts you at $192,921.41.


  • Pencil Stache
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Re: A trip down memory lane a home buying what if
« Reply #3 on: June 08, 2020, 03:36:37 PM »
Don't assume you'd take the mortgage deduction. Unless you have a very high mortgage (you didn't), or a very high income, it's unlikely you would have.

We bought a house in California in 2015 (for about the same amount, $242k) and the only year we itemized was the first, and that's because we bought points and that raised us above the threshold.

Granted, we still itemize California, but the difference in tax owed is pretty marginal when it's just state.